Exclusive: South Korea’s Yoon urges attention to any ‘financial instability’ as money market falters

SEOUL, Nov 29 (Reuters) – South Korea’s government and central bank should pay more attention to combating any financial instability, President Yoon Suk-yeol told Reuters as the money market grapples with a sharp sell-off amid rising interest rates and a real estate slump.

“There are growing opinions that inflation has peaked and it is time to slow the pace and narrow the breadth of rate hikes. However, we must continue to closely monitor any potential financial instability,” Yoon said during a broader interview at his office on Monday when asked if it was time for the Bank of Korea to slow monetary tightening.

Yoon’s comments come as the BOK signaled last week that it could be nearing the end of an unprecedented series of monetary tightening in Asia’s fourth-largest economy to curb inflation.

Yoon spoke hours after the Treasury Department and the BOK announced a second round of support measures to ease tensions in their short-term money market as three-month commercial paper yields hit a new 13-year high on Monday.

The South Korean money market, particularly at the short end of the bill curve, has seen one of the worst falls in Asia as investors sold off on rising interest rates and a broader housing market downturn.

The country’s households are among the most indebted in the world, and some are struggling to stick to their repayment schedule as mortgage rates hit a decade high at a median 4%, a recent BOK survey found.

South Korea’s household debt-to-GDP ratio was 102.2% in the second quarter, the highest among 35 major economies tracked by the Institute of International Finance.

The BOK Monetary Policy Committee unanimously agreed to raise interest rates by a quarter of a percentage point to 3.25% during its November 24 review – taking the policy rate to its highest level since 2012. It was less tightening after a half-point increase in October, reflecting a slowdown in inflation to 5.7% in the same month from a nearly 24-year high in July.

Asked whether the risk of a mild recession could prompt additional stimulus spending next year, Yoon said the plan is to stick with the current budget of 639 trillion won ($481.7 billion) for 2023 and focus on the Focus on reducing spending.

“We will set up our budget as is by next year,” Yoon said, adding that the government will seek to pursue effective tax policies by cutting unnecessary spending and prioritizing spending in areas where this is required.

Yoon’s first budget proposal for 2023, announced in August, showed the country will cut spending for the first time in 13 years and turn away from pandemic-era stimulus to help the BOK ease inflationary pressures.

($1 = 1,326.6900 won)

writing by Cynthia Kim; Edited by Himani Sarkar & Shri Navaratnam

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